Insurance Policies May Fall Short If Not Updated Annually

Regularly reviewingyour overall insurance program for yourself and for your small business, if you own one, is critical. Just as your computer antivirus needs to be updated to account for evolving cyber-threats and vulnerabilities and your changing usage, your insurance policies need to be regularly updated and adjusted to take into account your changing financial situation.

For example, if you purchased your homeowner insurance 20 years ago when the only furniture you could afford were a few lawn chairs, it’s time to update your policy to include the value of subsequent purchases and the appreciated value of your home.

There’s no hard-and-fast rule on how often you should review your policy, but at a minimum, you should do it every time you or a family member undergoes a significant life change.

For example, a partial or complete insurance review may be appropriate at the following times:

Immediately prior to a marriage or adoption

When a teenager becomes a new driver

When a family member or other household member moves in or out

When you start a business

When you buy or sell a new property

When you make large purchases

When you get a large pay raise or promotion

When you inherit or otherwise come into property of significant value

When you want or need more insurance or protection and you have some discretionary income to pay for it

When you think you may become subject to the estate tax

When you start a new career

When you want to pay less in premiums (for example, when you’re in a position to increase your deductible on medical or car insurance to lower your premium costs).

Even if you haven’t undergone a significant life-changing event, such as the birth of a child, you may want to buy insurance to protect yourself against future threats. For instance, though you are in good health now and may be untouched by major life events, it may still be a good idea to purchase additional disability insurance to protect yourself and your family from the unexpected loss of income due to injury or illness. You may also want to purchase long-term care insurance to ensure this type of care is available and afforded if it’s needed.

You may also want to review your beneficiaries. Are they still appropriate? Look at both your primary and secondary beneficiaries. Are they all still alive? Do you need to replace any?

Other activities may include a life insurance review. Does your policy still meet your needs? Do you have cash value policies in danger of lapsing? It’s often true that older life insurance policies no longer make sense. In this case, you may want to discuss converting your life insurance policy into an income-generating annuity, tax-free, using a Section 1035 exchange. This move is particularly popular among empty nesters — sometimes the insurance policy has served its purpose, and the financial resources are better utilized elsewhere.

The best way to do an insurance review is to work closely with an experienced insurance professional and look carefully at each policy as well as at your overall financial situation.